Shire (SHPG) Q4 Earnings Beat, Immunology Franchise Strong

Shire plc SHPG reported fourth-quarter 2017 earnings of $3.98 per American Depositary Share (“ADS”), which beat the Zacks Consensus Estimate of $3.86 and were up 18% from the year-ago quarter figure of $3.17.

Revenues of $4.1 billion, up 9% year over year, also beat the Zacks Consensus Estimate of $4.01 billion. The year-over-year increase was aided by strong growth in the immunology and neuroscience franchise, partially offset by loss of sales of Lialda.

Shire’s shares have underperformed the industry in the past year. The stock fell 23.7% during this time frame compared with the industry’s 0.4% rise.

Quarter in Detail

Product sales increased 8% year over year to $3.9 billion driven by the immunology and neuroscience franchise. Royalties and other revenues were up 26.4% to $233.9 million.

The company’s Ophthalmology franchise contributed $86 million to total product sales, up 11.1% sequentially.

The immunology franchise, which now includes sales of hereditary angioedema (“HAE”) drugs, registered sales of $1.24 billion, up 15.2% year over year. Neuroscience franchise sales came in at $684.3 million, up 16.2%. Vyvanse sales increased 14% to $540.8 million and Adderall XR sales increased 27.8% to $105.7 million.

Genetic disease portfolio sales were up 3.8% to $376.9 million primarily. Shire has excluded HAE drugs from this portfolio. Elaprase sales decreased 2.1% to $161.2 million while Replagal sales rose 10% to $123.1 million.

Lialda sales were down 55% to $99.8 million due to the entry of generic competition. The company has launched an authorized generic version of its own to counter the competition. However, Gattex and Natpara showed impressive performance with sales increasing 63.3% and 66.4% to $106.3 million and $44.1 million, respectively. Oncology sales added $72.4 million to total revenues.

Research and development (R&D) costs were up 5.3% to $438.8 million while selling, general & administrative (SG&A) expenses decreased 10.7% to $883.2.

2017 Performance

Product sales increased 33% year over year to $14.4 billion on the back of strong sales of immunology franchise and inclusion of legacy Baxalta sales. Adjusted earnings per share increased 16% year over year to $15.15.

2018 Outlook

Shire provided its earnings per ADS guidance in the range of $14.90–$15.50. Product sales are expected in the range of $14.9 billion and $15.3 billion. The company expects royalties and other revenues in the range of $500–$600 million. Gross margin is estimated between 73.5% and 75.5%.

In October, the European Commission approved the label expansion of Firazyr to include paediatric patients (adolescents and children aged 2 years and older) with acute HAE. Meanwhile in December, the marketing authorization application for Lyophilized Oncaspar, a new dried formulation, also received approval. Shire’s ulcerative colitis candidate, SHP647, and Hemophilia A candidate, SHP654, were granted orphan drug designation by the FDA.

In August, Shire submitted a marketing authorization application in Europe seeking approval of lifitegrast (approved as Xiidra in the United States) for treating dry eye disease.

Subsequent to the quarter, Xiidra received approval in Canada and Adynovi was approved for Hemophilia A in Europe.

Our Take

Shire’s fourth-quarter results were encouraging with the company beating bottom-line estimates driven by the sales of immunology and neuroscience sales. The approval of Lyophilized Oncaspar will provide further boost to its top line.

Generic competition for Lialda is expected to continue, further impacting sales unfavorably in the fourth quarter.

XOMA’s loss per share estimates have narrowed from 99 cents to 42 cents for 2018 in the last 60 days. The company pulled off a positive earnings surprise in one of the last four quarters, with an average beat of 47.92%. Share price of the company skyrocketed 393% over a year.

Exelixis’ earnings per share estimates have moved up from 72 cents to 77 cents for 2018 in the last 60 days. The company delivered positive earnings surprise in the last four quarters, with an average beat of 572.92%. Share price of the company surged 33.7% over a year.

Enanta Pharma delivered a positive earnings surprise in three of the last four quarters, with an average beat of 373.1%. Share price of the company surged 173.5% over a year.

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